Oracle Corp (ORCL) — Q1 2017 Earnings Call Transcript

Thank you. Good afternoon, everyone, and welcome to Oracle's first quarter fiscal year 2017 earnings conference call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. On the call today are Chairman and Chief Technology Officer, Larry Ellison; and CEOs, Safra Catz and Mark Hurd. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today’s discussion, we will present some important factors relating to our business that may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements made today. As a result, we caution you against placing undue reliance on these forward-looking statements and encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. Finally, we are not obligating ourselves to revise our results or publicly release any revisions to these forward-looking statements in light of new information or future events. Before taking questions, we’ll begin with a few prepared remarks. And with that, I’d like to turn the call over to Safra.

Thanks, Ken. Good morning – good afternoon, everyone. I’m going to focus on our non-GAAP results for Q1; I’ll then review guidance for Q2 and turn the call over to Mark and Larry for their comments. Clearly, we are pleased with our results, with the most obvious thing being that we overachieved again in the cloud, especially in the United States. As you all know, we have pivoted the organization to go after the cloud and we are outperforming even our most aggressive expectations. This has resulted in our growth rate continuing to accelerate as we scale in the cloud, something our competitors are not similarly experiencing. We continue to use constant dollar growth rates on our quarterly calls, so we can have some measure of consistency across the quarters, as well as to reflect how we measure the business. This quarter, the effects of currency movements were more than expected, mostly because of the surprise Brexit vote that happened after our earnings call, resulting in a 1% to 3% headwind in most revenue categories, including 1% to total revenue and EPS, which was a $0.01 lower as a result. Cloud, SaaS, and PaaS revenues for the quarter were $816 million, up 82% from last year and above the 80% high-end of my guidance. While this excellent growth rate was helped a little by recent acquisitions, organic growth accelerated from both Q4 and Q1 of last year. Actually, organic SaaS and PaaS growth rates have accelerated for seven straight quarters. You can also see the continuing revenue acceleration of our cloud business in the SaaS and PaaS billings and deferred revenue. The gross deferred revenue balance is now nearly $1.5 billion, up 49% in U.S. dollars. SaaS and PaaS billings grew 49% in U.S. dollars this quarter, up from 38% last quarter. We put the billings numbers up on our website for you to see the detail. Our SaaS and PaaS business has now grown to the point where the dollar growth in SaaS and PaaS revenue exceeded the dollar decline in new software licenses. Together, SaaS and PaaS subscriptions and new software licenses grew 16% in constant currency. As our SaaS and PaaS business continues to scale and grow dramatically, the gross margin also continues to expand. The Q1 gross margin for SaaS and PaaS was 62%, up from 40% last Q1, and we expect to see further improvements in fiscal year 2017, and from there, we’ll be targeting 80% over time. Combined with cloud infrastructure as a service revenue of $171 million, which was up 10%. Our total cloud revenue in the quarter was nearly $1 billion, up 63% in constant currency from last year. Total on-premise software revenues were $5.8 billion, with software updates and product support revenues at $4.8 billion, up 3% from last year. Attach and renewal rates remain at their usual high levels, as our growing installed base of customers continue to power earnings and cash flow. New software license revenue was slightly over $1 billion, down 10%, reflecting the continued migration to cloud. Total hardware, including hardware support, was down 11%, with hardware systems product revenues of $462 million and hardware support revenues of $535 million. Our engineered systems grew mid double-digit, led by Exadata that grew over 30% in the quarter. For the company, total revenues for the quarter were $8.6 billion, up 3% from last year. Non-GAAP operating income was $3.4 billion and operating margin was 39%. I need to remind you that the large debt offering we did last quarter cost about $0.005 in EPS in the quarter. The additional interest was not in my guidance as the debt offering took place after the guidance call. For Q2, I expect the added interest will lower EPS by more than $0.01 without the matching benefit of next week’s contribution to earnings, which will be accretive until the deal closes. G&A expenses were also higher than usual in Q1 because of some legal fees, which will be lower in the second quarter and largely gone by Q3 as a result of the settlement of one case and the end of two trials. The non-GAAP tax rate for the quarter was higher than projected due to the geographic mix of earnings, which is driven by our overachievement in cloud revenues in the U.S., resulting in a tax rate of 25.5 and EPS being a $0.01 lower at $0.55 in U.S. dollars, but still up 5% in constant currency. The GAAP tax rate was 22.8% and GAAP EPS was $0.43 in dollars, up 11% in constant currency. Operating cash flow over the last four quarters was $13.7 billion. Capital expenditures for the quarter were $299 million. Free cash flow over the last four quarters was $12.6 billion, up 5% from last year. We now have approximately $68 billion in cash and marketable securities; net of debt our cash position is approximately $14.3 billion. The short-term deferred revenue balance is $9.5 billion, up 5% in constant currency. As we said before, we’re committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt, and the dividend. In terms of acquisitions, we continue to focus on finding the right companies at the right valuation that make both strategic and financial sense. This quarter, we repurchased 49 million shares for a total of $2 billion. Okay, and the Board of Directors again declared a quarterly dividend of $0.15 per share. For those of you curious about NetSuite, I can report that we have now cleared antitrust reviews everywhere except the United States, where our waiting period expires at the end of September. Now, to the guidance. I’m going to give you guidance for Q2 and then some updated comments for the fiscal year. All of my guidance today is on a non-GAAP basis and in constant currency. And while we feel good about our own performance and transformation, I’m always keeping an eye on the macro environment, especially abroad. If current exchange rates remain the same as they are now, we expect to see SaaS and PaaS revenue is expected to grow again, 78% to 82%, a little bit more than I guided last time. Software and cloud revenue, including SaaS/PaaS and IaaS, new software licenses, and software support is expected to grow 3% to 5%. Total revenue growth is expected to range from 0% to 3%. EPS is expected to be between $0.59 and $0.62 in constant currency; were it not for the higher tax rate and interest expense, we would expect EPS to grow approximately 4% or be $0.06 higher. Over the full year of fiscal year 2017, I’m raising the outlook for fiscal year 2017 SaaS and PaaS revenue growth from 65% to 67%. I continue to expect the SaaS and PaaS gross margins will exit Q4 higher than the 62% reported today, as our cloud business continues to grow dramatically. With that, I’ll turn it over to Mark for his comments.

Thanks, Safra. First, we just had a great quarter. And I want to thank everybody at Oracle for their hard work, all of our employees. I’m going to give you a lot of numbers. Let me start with booking and revenue growth rates. I’m going to give them to you year-on-year in constant dollars, unless I state otherwise. Cloud bookings ARR was $271 million in U.S. dollars, a 42% growth. As a reminder, ARR growth last year was 166%. SaaS bookings were $165 million USD and PaaS/IaaS bookings were $106 million USD. As Safra said, SaaS/PaaS revenue was up 82%; I just want to repeat the seventh consecutive quarter of organic growth acceleration. Our ERP EPM revenue grew 70% quarter-on-quarter. The seventh consecutive quarter with sequential growth that was greater than 50%. In Fusion HCM, we grew 131%, nearly four times the growth rate of Workday. In CX separately, up double digits in sales, marketing, and service. Data as a service was up 75%. Platform as a service was up 22% quarter-on-quarter. Overall, we grew 82%; the highest global growth rate at any scale cloud company. SaaS/PaaS billings grew 49% in the quarter, up from 38% last quarter. Deferred SaaS/PaaS revenue was up 49%. SaaS customer metrics: We closed 776 new SaaS customers in the quarter. We have 677 expansions. 125 customers who bought SaaS also bought PaaS. 346 new CX customers and 488 expansions. A total of 173 new HCM customers drove that great result, inclusive of 69 expansions. 344 ERP EPM customers and 135 expansions. Our active base is now 2,800 customers with a 1,000 live, 10 times Workday. Over 50% of our ERP EPM customers were net new to Oracle, that never purchased an Oracle application before. Two-thirds of our new customer wins were Fusion. 334 go-lives in Fusion, our best quarter ever. 2,032 PaaS customers are new in the quarter. Our installed base is now 11,000 PaaS customers. 1,671 new infrastructure as a service customers are supplemental to our PaaS customers. Together our installed base of PaaS and infrastructure is now at 18,892 customers. As a point of clarification, PaaS and infrastructure customers accounted for each service that they use. In closing, this was just a very solid quarter for us, not only in revenue but bookings and billings. I look forward to a few predictions. Q1 bookings were solid at 42%. I believe Q2 will be better; it could even be much better. Q1 revenue was fantastic at 82%. It’s one of the reasons, as Safra described, we’re raising our guidance from 65% to 67%. And I just want to close by saying we are the fastest-growing scale cloud company in the world. With that, I’ll turn it over to Larry.

Thanks, Mark. We’re very excited about the rollout of our generation 2 infrastructure as a service data centers. These new data centers give us a significant cost and performance advantage over Amazon Web Services. Plus, our new bare metal offering makes it possible for our customers to lift and shift their entire existing corporate infrastructure, data, and applications without any changes whatsoever and move it to the Oracle Public Cloud. You just can’t do that with Amazon Web Services. Lift and shift the entire network, database, data, applications, move all of that across to our data centers without changing anything. So real advantage. For the first time, we have this big technology advantage in the infrastructure as a service. We expect this will enable Oracle to accelerate our infrastructure as a service business to the same high growth rates that we’re currently experiencing in both SaaS and PaaS. With that, we’re ready for questions.

Hey, thanks for taking my question. Question for Mark. Mark, the bookings number looked impressive and you hinted at the better numbers in Q2. And – but you also in the press release talked about the $2 billion that you want to achieve for this year, which actually needs a slightly better than 42% growth for the year. Can you talk a little bit about the drivers that drive that strong number and the acceleration here? Thank you.

Sure. Yes, I mean, obviously, to your point, we grew 42% in the quarter. I actually, as good as that was, we could have done better; that’s how strong our pipeline is right now. And as I told most of you that as we’ve gone through this cloud transition, we’ve got a pipeline, and we understand now with as more data has come clear to us how that translates to performance, and our performance continues to get better. I think it’s all of the things we’ve talked about. Not only have we got more salespeople than we had before; they’re better trained. Our customers are more aware. We have more references. We have more go-lives, and all of that feeds together. In addition, we not only have more products; we’re going to release more products yet, even this week or next week at OpenWorld. But more of our existing products are available in more geographies. So, as for example, the release of ERP actually has not been available in every geographic market in the world as it now is. So you’ve got a culmination of all of these factors that lead into it, but we are going to have a very strong bookings year, as I described.

Thank you.

Next question please.

This is Keith Weiss from Morgan Stanley and thanks for taking the question. From our perspective, it looks like over the past two years, we’ve seen Oracle make a large push away from perpetual licenses towards attrition-based SaaS offerings on the application side of the business. And now, it appears that that push is shifting more on the database tech side of the business, steering more business towards platform as a service. So one, is that a correct assumption to focus more on database tech going towards platform as a service? And two, how should investors think about the impacts of that shift in FY 2017, in particular?

Okay. This is Larry. We started our Fusion applications efforts a little over 10 years ago. So we started rewriting all of our applications for the cloud about a decade ago. And when those applications were ready, we moved aggressively to sell those applications. We believe that’s what customers wanted. They wanted cloud-based applications, not on-premise-based applications. We have made a huge investment in rewriting all of our applications. And those were ready before – and we were ready to move into SaaS applications before we were ready to move into infrastructure as a service or PaaS; we were just ready sooner. So we pushed back. The interesting thing here is we are just beginning to move our database customers from on-premise into the cloud. Microsoft has already done a very good job of moving their office customers from on-prem into the cloud, and that’s the overwhelming basis of their cloud growth. The overwhelming basis of our cloud growth are new customers for applications. So we haven’t started shifting our base yet, which I think is very interesting. We got these applications ready. We’re gaining share right and left, let’s say. We mentioned Workday a lot because they are our primary competitor for HCM and ERP in the cloud. As Mark pointed out, we have 10 times more customers than Workday has in ERP and we sold more, but those are - half of those are net new customers. Okay? So that’s us gaining share in that business. We’re now beginning to move our installed base into the cloud. And this is a lot of expansion. It’s not like they’re going to stop running on-premise. We believe this is sort of the next decade. This is a coexistence story. They are going to continue running some of their stuff on-premise and they’re going to move some of their stuff into the cloud and those two things have to coexist. Our unique offerings to our customers and database is the fact that we support the identical software on-premise and in the cloud. You can move data and workloads back and forth very, very gracefully; that’s our PaaS offering. And by the way, if you are a SaaS customer, your application is built on top of our database and our middleware. So you buy SaaS with PaaS. You often buy together, as Mark pointed out. Finally, so PaaS was ready second; we were ready. We were moving aggressively in the PaaS. Now what we’re looking for is the third leg of the stool, which is to push into infrastructure as a service, where we have a new and very aggressive competitor in Amazon.com, but we think now with our new generation 2 data centers we have a big competitive advantage over Amazon.com. People will be buying our PaaS and our infrastructure as a service together. So we sell PaaS twice. Sometimes we package PaaS with our SaaS applications together. This new business is selling PaaS with infrastructure as a service, where they are building a lot of custom applications or moving existing applications into the cloud. I think our SaaS business has got a new business or a lot of new customers. We’re just beginning to shift our installed base from on-premise into the cloud, which is enormous potential for us. We think we make a lot more money by moving customers off-premise into the cloud because we do a lot more things for the customer. We help the customers save money, but we also provide with our database storage, networking, compute, and all of the associated support services. We think this is the beginning of still more rapid growth for Oracle.

One thing, I would not want you to walk away with: As you said, shifting from SaaS to PaaS. We’re not shifting; we’re supplementing. I mean, this is in SaaS, we have more energy and more momentum than we’ve ever had. We’re not taking our foot off of that accelerator. We are supplementing. By the way, let me just be clear to Larry’s point; if we could push a button and move all of our on-prem Oracle database customers to PaaS, we would do it. It is economically beneficial to us. Secondly, we think it’s the way customers also want to buy now. But there is this transition that Larry talked about that we are going through. But I don’t want you to think SaaS and PaaS have some interrelationship to the energy. We have separate actually sales organizations to do both. Our energy is on both; we think both are tremendous opportunities about to be supplemented by our infrastructure offerings that Larry referenced.

Thank you, guys.

Next question please.

Hi, great, thank you. It’s Hindlian. Thanks for taking my question and congrats on the momentum in the cloud, Larry, Safra, and Mark. I was hoping you could talk a little bit more about what is driving some of the success you’re seeing there? I know you mentioned conversions on the pipeline are strong and reference customers are now live, but are you seeing any success around the streamlining of cloud purchases through the new accelerated buying experience, or is this more sales compensation changes, and of course, product functionality improvements that’s driving the success in the cloud? Some more comments and color would be very greatly appreciated.

Well, for sure, I think it really is very much all of the above. So let me just address the accelerated buying experience. Because the most important part of it is that we end up being able to service our customers much more quickly, much more efficiently. Our salespeople become so much more productive; they can spend more of their time, really the bulk of their time with the customers outwardly facing, making them successful instead of inwardly facing, dealing with our own back office. So this has really unleashed a massive amount of productivity. Obviously, having many references is critical for the success of software service because customers all talk to each other, and the happier customers lead to more happy customers, and this is by the way one of the reasons we love Oracle OpenWorld because tens of thousands of our customers come and they share their positive experiences, and that just gets more and more customers excited and participating. And then of course, the sales force has an enormous amount of success, which ends up leading to just more success, more productivity. The entire thing is a very, very virtuous cycle, all of which starts with having the best product. That’s really the bottom line, ultimately. As Larry mentioned, we spent a decade, frankly, it's a little over a decade in building these products. We had leading products to begin with, but we started and rewrote them all, focused exclusively – really focused on the cloud, and that’s what ultimately shows through.

Thank you, Safra.

Thank you.

Thank you. I’m going to ask another question about the cloud. I mean, when we look at your traction here, and it’s been much better than we would have thought, especially in this quarter, which usually is a seasonally slow quarter. I mean, I don’t think we’ve seen a company of scale move to cloud with the kind of gusts that we’ve seen here. As Larry mentioned, the cloud move here was mostly new – I think you said customers, but I think you meant new workloads. I mean, when should we expect to see more customers actually transition current workloads from on-premise to the cloud? And how is this going to affect the aggregate bottom line in the near-term?

We were referring to new customers, not new workloads. Mark made an error and intended to say new customers. I didn't provide details for the sake of time, but to give an idea of new customers in the quarter specifically in SaaS ERP, we closed deals with Adventist Health, Rico, Sachs, Tesco, Texas Instruments, and UCLA Wake Forest University Baptist Medical Center.

So were these customers never customers of Oracle before?

They are current applications out there.

Okay.

We just make a distinction between moving an existing application customer from, let’s say, an Oracle e-business big customers Oracle Fusion ERP and the cloud.

Got it.

We’re just taking an SAP customer and moving them from SAP to Oracle Fusion applications. And I think coming back to the point Larry was making earlier. Most of what you see in our cloud revenue number is customers that more than 50% were customers who were not an Oracle application customer before they became an Oracle SaaS customer. So these are really new customers. And then to your point, that are bringing new workloads that we had not before. The exciting part, which again, I’ll go back to what Larry said, was the core of our on-prem user base, particularly in the database arena has not moved. And that is a huge opportunity for us that’s only we can move them to the cloud efficiently and effectively.

Right.

So that’s why this is such a success. We might not do as good a job as we did as we feel it here, because what we’ve seen so far is what you would think of, John, is normally the hardest stuff, going out and finding net new customers.

So, John, I’ll just distinguish again what I said before. Microsoft is holding on to their office customers by moving them on-prem into the cloud. We are not holding on, just holding on to our on-prem customers, moving our application customers to the cloud. We are doing that too. We are holding on to our apps customers by moving them to the cloud. But more than that, we’re gaining more than half of them are net new customers. So that’s very different than what you see going on in Microsoft. And our big installed base, which is the database, we’re preeminent. We really haven’t begun. We’re just beginning in the early stages of holding on to them and moving them to the cloud. So it’s a bit of a different story between us and Microsoft. That exciting prospect of moving all those database customers to cloud is in front of us. And that’s what makes – and I, congratulate Microsoft on doing what they’ve done. It’s the right strategy for them. Ours has been, what we’ve said, we want to do that, but we want to do more. We think we have the opportunity. Safra mentioned another very important metric; our renewal rates are where they’ve always been, which tells you the bulk of our base that’s on prem is still yet to move. And it tells you and supports the story about how much from us is just plain net new opportunities, John, for us.

Great, that's very clear. I asked about the impact on the bottom line in the near-term because Safra mentioned how some extra items affect the EPS guidance compared to prior expectations. Is this going to be suppressive to margins, at least initially? We've seen that, but it seems to be a new situation.

I’m going to let – I’ll let Safra comment again, but I want to make sure it’s clear what we were saying. This is actually the fact that we’ve done a very good job in the U.S. growing our cloud business; that’s eventually had the strange effect of raising our tax rate, right?

Got it.

This is the bad news you could get. So we’re in a situation, where I hate to say, we over-executed, but that’s sort of how you feel. To be clear, John, our bookings in Europe are very strong. And so this is going to normalize. This is just a point of us putting or moving those bookings into revenue.

So, as we have more balance between our international cloud sales and our U.S. cloud sales, the tax rate should drift back to where it normally is. When we have the same mix, we just now, we have a disproportionate amount of our cloud revenue in the United States. That’s the balance, and we expect the tax rate to go back. While the bookings balance, it’s just the current period revenue that we’ve got today. But this is overall a – might be a very good story. Let’s not lose the fact of the other numbers that Safra described very early. Our margins are now at 62% in our SaaS/PaaS margins, which we talked about way back when they were at 39%, as we were investing in infrastructure to prepare for what we have now. I think the margin story, John, is also beginning to solidify, as we continue to grow and put revenue on top of the base.

Great, that’s all. Very helpful. Thank you.

Great. Thank you so much. This is a question for Safra. Safra, support grew – software support grew 3% year-over-year, but was flat sequentially. I’m wondering if there’s any color you could provide here on the trends in that business? And also, if you can share with us how you think about the trade-off between support and cloud revenue, and how you think about the sustainability of that software support stream? Thank you.

Sure. So of course, you have to remember, we’re going from Q4 to Q1. So our Q1 new licenses are seasonally the lowest one anyway, okay? Now, as you know, our focus is now on cloud. So as new license becomes a smaller number, especially in Q1, it means that it does not – that the support base does not grow as much. There’s also a little bit of currency, but you should ignore that. So that’s the first thing. Now, I know you’re probably worried that all of a sudden support is going to go negative; the base is going to go negative. We don’t foresee that happening, okay, because the base is continuing to grow even though new licenses, which means the base does continue to grow, and it grew 3% year-over-year. So that’s, I think, I don’t know, you had a few parts to your question, but that’s really what’s going on here. We don’t – yes, that’s it.

Great. And if I could just on that point just with the support trends that you are seeing, is this still a year where you’ve forecasted bottom and operating income? I’m sorry, fiscal 2016 being the bottom, my apologies.

Yes. Yes, it is. Absolutely, absolutely. And I do want to say one more time, again, and also Mark mentioned it, our retention rates, our renewal rates in our support business remain very, very high. So, in fact, they’re a little bit higher this quarter than another quarter. It’s all within a band of very high; they remain that way.

And so they are high, Heather. But again, I want to reiterate as I said before now in this call. If a customer does move to the cloud, we actually get more money. So we actually do more things for the customer. We now do their hard work. We get all the database. We get all the middleware. We get a multiple on the support dollar. As our – so our support dollar goes up when it converts into a cloud revenue dollar. Back to the margin story we talked about five minutes ago, those margins in the cloud, as we see them approaching the levels that Safra described earlier, this is good news for us. So, yes, the renewal rates are what they are; we predict support to be the way they described. But this is not bad news; as we begin to move our base to the cloud, this is actually good news.

Okay. Next question please.

Hey, guys, thanks for taking my question. So Safra, just wanted your comment on gross profits. One of the things we look for in cloud transition stories is when do gross profits start to grow? Clearly, after a two-year slump, your investment is starting to pay off; gross profits were up for the first time in two years, I believe. Can you talk about the disparity between gross profit growth, which is obviously quite important, and the operating income growth there? Is that bit of a lag effect here? And also if I could ask you, Mark or Larry, on the PaaS side, can you just give us a little bit more color on what kind of projects our customers are picking Oracle for when they sign a PaaS deal, particularly given that you’ve surprised us with the announcement of a number of new customers for the PaaS, that I would have thought that would be just typical Oracle database customers, but looks like something new could be happening, if you could shed some light that’d be great. Thank you.

Sure. So first, I mean, you really should take directions from what’s going on in our gross profit lines for the most strategic part of our business, which is moving to the cloud and software and software as a service. That is going to be very much followed up. One of the things we do have that is costing us is that our hardware business outside of our engineered system is getting smaller. And the expense line has not adjusted equally. As you can imagine, that’s something that’s very straightforward for us to finish out during the year, and that is our expectation. In addition, you also talked – or you may have mentioned currency and tax and things like that. So obviously, currency is something I can’t project. After the Brexit vote, I’m pretty sure nobody else has projected it correctly either. But the way it affects us, just so that you know, is that the U.S. and Oracle are ahead of Europe in a move to the cloud outside of the United States. However, as Mark mentioned, the bookings are very, very high. So bookings that were booked in the United States over the past year are turning into revenue already in the United States. Since the number is smaller in Europe, the bookings and the revenue numbers are smaller, the bookings are approaching those of the United States, and those are going to start flowing through revenues. That will, in fact, impact our tax rate and readjust it back to the lower rates that you may be used to. So that’s going to take a little while and that should go through. In addition, as you know, we do have some significant borrowings, and as a result, we have a very large amount of cash on our balance sheet right now, which is not earning very high results. We are looking forward to closing the next week's deal, which we believe to be accretive. And that will also be helpful.

The other part of your question – this is Larry is we sell PaaS too. PaaS is sometimes attached to SaaS. Think of it like Salesforce.com. They have their Force.com platform, where it’s used to extend the Salesforce application. We have our platform that people use to extend our SaaS application. So SaaS, you buy a number of SaaS applications or a suite of SaaS applications, and you buy a certain amount of PaaS to extend and build data marks, data warehouses, other things add features and functions to use PaaS for that. Also the bigger opportunity is when you buy PaaS and infrastructure as a service together where you’re either writing brand new, net new custom applications, or you’re lifting and shifting an existing custom application to our infrastructure as a service and then moving the database associated with that application to our PaaS. That’s actually the bigger opportunity. You’re beginning to see that start to drive our PaaS business higher, and of course, it will accelerate the growth rate of our infrastructure as a service business as well.

I’d add just one last thing. Exadata as a Service has been a very strong PaaS offering. We count Exadata as a service, meaning, you can now get Exadata in the cloud, as you can get it on-premise. Our Exadata service, Exadata as a service offering has been a strong PaaS offering. We actually don’t even add that into the engineered systems numbers that Safra described earlier, and that’s really the strength and popularity of Exadata. We also have a pretty good-sized business now built in PaaS, which is a cloud integration services business inside our platform as well. Everything Larry said, all the debt has stuff supplementing our SaaS offerings, Exadata, and the data integration services are at the core of our most popular PaaS offerings.

Okay. Next question please.

Thanks very much. Mark, given that you guys have a view into both the on-premise and the cloud world. I was wondering if you could give us some sense on where you think larger, say Fortune 1000 types are in terms of moving their ERP systems to the cloud as well. CRM and HCM seem to be past the tipping point. There is some debate as to how fast some of the bigger companies are going to move ERP. And I was just kind of curious what you’re seeing in your pipeline, and is that necessary? Does that have to happen for you guys to sort of hit your AR forecast for this year? Just trying to get a sense on where we are on that front?

The answer to your last question is no. And the answer to your first question is faster than I would have thought two or three years ago. Some of the names I read earlier are scale companies. When you see somebody like Tesco moving, when you see an HSBC moving, when you see some of these brands, we have all types of brands in our list of ERP companies ranging from GE and others, as I described to sort of newer companies like Left and others that are sort of newer hot mid-market companies; they might not even have a set of financials before. It’s really all of the above. The thing that we get excited about is the reason we talked about Workday probably as much as we do is we see them at least for the SaaS offering; our core on-prem competitors historically haven’t done anything. So when you tried to look at their base, their base begins to look for some of the benefits that our base now has an opportunity to take advantage of. We think there’s a possibility for a relatively sizable market share shift over the years as we move forward. I do think you’re going to see how you’re kicking, and you see it now of many scaled companies that are some of the biggest companies in the world, and you see a few of them showing up on our list of recorded wins.

Great. Thanks for the color.

Good afternoon. I just have a quick follow-up on a database. Clearly, had a – have very strong momentum in the cloud application business. Can you give us a little more color on where the database cycle will show up, and what’s the best way for us to measure it? That will be helpful. Thanks.

Again, next week at Oracle Open World, this Sunday, we are announcing the latest version of our database, and it’s going to be available in the cloud, on Exadata. We think I think you’re going to see a very rapid update of the new version. We expect those customers to consume some of it on-prem, but also a significant amount of their new database consumption is going to be in the cloud. I think 12 – Release 2 is going to move customers to the cloud more quickly than they otherwise might be.

Great. Thank you.

Okay.

With that move to close the call please. But before we do that, let me just finish up with the last couple of comments. Thank you for joining us today. A telephonic replay of this conference call will be available for 24 hours. The dial-in information can be found in the press release issued earlier today. Please call the investor relations department for any follow-up questions from this call. We look forward to speaking with you. Thank you very much for joining us. With that, I’ll turn it back to the operator for closing.